US Digital Dollar: Will Fiduciary Currency Drive the Cryptographic Wave? | Business and Economy News


The U.S. dollar has reigned for many decades as the world’s first reserve currency, backed by the faith and credit of the U.S. government and the value of its powerful economy.

But in recent years, the dominant monetary unit that has been chosen around the world has faced a growing series of threats, ranging from its own inefficient financial infrastructure and the introduction of the Chinese e-yuan in the spectrum of We say Facebook i cryptocurrencies like Bitcoin.

So as countries like the Bahamas, China and Sweden test the viability of the central bank’s digital currency (CBDC), U.S. policymakers are taking stock.

Two U.S.-based efforts explore the concept of a digital digital dollar at a time when cash is no longer king.

The Digital Currency Initiative of the Massachusetts Institute of Technology (MIT) is working with the Federal Reserve Bank of Boston on research to initiate the hypothetical currency exchange in an experiment coined with the Hamilton Project. The president of the Boston Fed has said that a future “Fedcoin” would mix the features of Venmo and Apple Pay.

And it is the Digital Dollar Project, a collaboration of the non-profit Digital Dollar Foundation and the consulting firm Accenture Plc launching five pilots next year. This company hopes to generate public debate and take practical steps towards a CBDC.

“There are a number of reasons why central banks around the world are seriously considering the CBDC, including data capture and economic privacy, financial system modernization, financial inclusion, profit execution accuracy government and monetary policy, “said Christopher Giancarlo, co-founder of the Digital Dollar Foundation and a former U.S. government regulator.

Giancarlo told Al Jazeera that “geopolitical concerns, stable currency competition [like Diem] with banking payment systems and leadership in setting standards for the interoperability of the global digital currency ”also motivates the US.

“The private sector has been exploring opportunities for digital assets like Bitcoin for over a decade and now the public sector is trying to catch up,” he said.

“No need for mining blocks”

There is no guarantee that the United States will successfully adopt a digital dollar, Chris Ostrowski, managing director of the UK-based Digital Monetary Institute, told Al Jazeera.

Progressives, libertarians, and business-oriented technologists have different ideas about what a CBDC should look like, with no agreement on goals, design, or functionality.

Proponents of a digital dollar like Rohan Gray, president of the Modern Money Network and a professor at Willamette University College of Law, argue that a government-wide approach can take forward a coordinated, multi-way framework.

Several US lawmakers have proposed digital portfolios to help non-bank and non-bank Americans receive benefits and make payments [File: J Scott Applewhite/AP Photo]

Gray believes U.S. President Joe Biden should work with Congress to achieve a path to digitizing the dollar just when government agencies combine forces, at least in theory, to address complex issues such as the coronavirus pandemic. economic recovery and climate change.

“We’re not talking about an instrument, platform or technology, but a whole set of legislative changes,” Gray told Al Jazeera.

Among the set of controversial solutions envisioned by progressives is a proposal by Ohio Democrat Sen. Sherrod Brown to establish a digital portfolio in “FedAccount” dollars for all Americans to receive benefits and make payments.

The system would be easily accessible to local banks and would have no commissions. This is also linked to a bill co-sponsored by Senators Bernie Sanders and Kirsten Gillibrand for the U.S. Postal Service to provide retail banking.

A related idea is the Public Banking Act introduced by representatives Rashida Tlaib and Alexandria Ocasio-Cortez and which aims to “enact banking as a public utility, a proven model worldwide, to keep local money and reduce costs by eliminating Wall Street intermediaries, shareholders and paid executives.

Some digital tokens, such as Bitcoin, rely on job-testing (PoW) consensus mechanisms that value energy to validate transactions and coin new currencies, which involves powering thousands of computers working in unison. [File: Bloomberg]

Gray sees potential “eCash” solutions as a populist tool to combat inequality and make money more democratic by offering symbol-based digital currency on stored value cards, in parallel with ledger technology where people have assets directly on the central bank.

Like many left-wing supporters of the digital dollar, Gray says blockchain (the technology underlying cryptocurrencies) is not necessary when there is enough centralized trust.

“Blockchain is supposed to be a consensus among a group of peers on a common state of affairs, but that’s not the issue you’re trying to resolve here,” he said, referring to the way cryptographic networks verify transactions. “This doesn’t need mining blocks or work tests.”

Decentralized cryptography and the CBDC could coexist someday. But either way, private Bitcoin has accelerated the conversation about the latter partially replacing paper notes and metal coins.

“Benefits and risks”

Whether a digital dollar ultimately depends on the blockchain or is influenced only by the principles behind cryptocurrency, U.S. policymakers across all strips seem largely united by a desire not to let go. look back, in a global competitive race, to digitize the greenback.

Many see an American economy that has always been a pioneer in the internet and fintech sectors and fear that Beijing will end up pivoting from the limitation national implementation of its CBDC to a replacement for the popular Alipay and WeChat payment systems that already dominate much of Asia.

Broadly speaking, despite concerns about illicit financing and money laundering, U.S. officials criticize the implications of the Chinese model in monitoring and collecting consumer data.

U.S. Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Janet Yellen have shown increased support for a digital dollar, though their remarks on the lack of total anonymity of users have raised doubts, especially for conservative lawmakers.

Some libertarian members of the United States House of Representatives are bullish on the cryptocurrency but bearish on the big governments. At a June 15 hearing on the financial technology working group, senior Republican member Warren Davidson, an Ohio congressman, suggested that officials are still in the “learning phase” to get a digital dollar.

He described the current financial infrastructure as “already secure, effective, dynamic and efficient” and said the US should pursue digitalisation “for the right reasons, not just to pressure us”.

Federal Reserve Chairman Jerome Powell has noted increased support for a digital dollar [File:  Graeme Jennings/Pool via Reuters]

Davidson’s main criticism is about “solid money”: the concern that digital dollars could erode stability and prosperity. But he also warns not to stray from the “unauthorized” aspects of cash that allow for privacy in peer-to-peer transactions.

He told Al Jazeera that the digital dollar should be created “not as a control tool, but as a storehouse of value and means of exchange.”

Patrick McHenry, a Republican in the House Financial Services Committee, urged a thorough study of the “benefits and risks,” expressing agreement with the Fed’s commitment to “do it right.” [rather] to be first ”.

Other Republicans focus on the inflationary potential of “printing” too much money or on public sector traps that try to replicate what commercial banks are already doing. Also, from a cybersecurity perspective, keeping intermediary banks in place could isolate the Fed.

“Convenient cash add-on”

Consensus could emerge with Wall Street and financial technology companies around the 21st Century Dollar Act, a bipartisan bill that requires the U.S. Treasury Secretary to post status updates on the dominance of the dollar and the dollar. progress in the development of the CBDC.

About 80 per cent of central banks are actively researching the CBDC concept, including the European Central Bank and the Bank of England, which have recently published articles on the subject.

Last October, the Bahamas unveiled the “sand dollar,” the first national launch of a central bank of this technology. In April, the Central Bank of the Eastern Caribbean introduced its DCash. And the Bank of Jamaica plans to introduce digital currency next year.

The Jamaican program uses Ireland-based eCurrency Mint Inc. as a technology provider. The company’s director of markets, Miles Au Yeung, suggests the U.S. could do the same.

He told Al Jazeera that only the Treasury and the Federal Reserve should have the authority to produce, issue and distribute this new form of legal tender.

“Any CBDC must be able to operate within the existing payment rails of the financial system, including bank accounts, applications and payment cards, while extending to smartphones, QR codes and other innovative ways to store digital objects, ”Yeung said.

“Digital currency needs to achieve instant and definitive settlement,” he added, saying it should be able to scale “massively with minimal energy consumption”.

In the Bahamas, local company NZIA Ltd implemented the new digital currency, which general adviser John Kim described to Al Jazeera as “the most advanced and mature system of its kind,” noting that the CBDC building is a “convenient complement to cash”.

While Jamaica’s CBDC does not trust the blockchain, the Bahamas model is a hybrid “the best of both worlds” that combines blockchain systems and centralized systems, says Kim, who adds that it takes an approach. ” wait and see “of the US digital dollar.

“In reinventing any national infrastructure critical to the mission,” he said, “preparation is as important as the will.”

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